Weekend Report...US Dollar: A Diamond in the Rough?

Tonight I want to take an in depth look at the US dollar as it is so important
to the overall big picture regarding the deflationary outlook that appears
to be headed our way. There are just two pieces of the puzzle that need to
come into focus and one is a strong US dollar and the other is a weak oil
price. Everything else seems to be lining up. I have many different charts
for the US dollar that are showing us nothing is broken and basically this
consolidation area is still developing.

Lets start with a daily chart for the US dollar that I showed you a while
back that shows an expanding triangle forming. Notice the brown shaded support
and resistance zone that is made off the top of the blue 5 point triangle
reversal pattern just below. As you can see this expanding triangle has been
getting bigger so has the volatility been increasing. This is volatility
to the max.

With this next chart I want to show you a possible pattern that came into
focus last week when the price action failed to reach the bottom rail of
the expanding triangle. Please keep in mind this new pattern is still far
from complete yet there is now a potential that the expanding triangle is
maybe morphing into a big Diamond consolidation pattern which is how diamonds
tend to form, expanding on the left side and contracting on the right side.
If last weeks low can hold, which is most important for this diamond pattern
to form, then we can connect the bottom rail that will start the contracting
process on the right side of the chart. As you can see last weeks price action
bounced between the 50 dma and the 200 dma with the 200 dma holding support.
So we are at a critical juncture for the US dollar right here and now. The
top blue rail on the right side of the chart is just a parallel rail to the
one on the bottom left side of the chart so it's not firm. I expect some
more chopping on the right side of the chart before the possible Diamond
pattern can be completed. This possible Diamond fits in nicely with the longer
term charts that are showing resistance at this point in time. Whenever you
have a strong support or resistance many times a consolidation pattern will
form just below a resistance rail, for example, that gives the stock enough
energy to finally break through to the other side. I've added some black
arrows that will give is a rough look at what I would like to see happen
to finish off this most important diamond consolidation pattern to the upside.

This next chart is a three year look that shows you two important support
and resistance zones in the brown shaded areas. As you can see the top brown
shaded support and resistance zone is still holding resistance. The lower
support and resistance zone has been a little sloppy but the potential blue
diamond has pretty much found support on top of the lower S&R zone. As
you can see our blue diamond has formed between the upper and lower brown
shaded support and resistance zones which makes sense if you think about
it. Once the US dollar can overcome the top S&R zone it will then reverse
its role and act as support from the topside. Also on this chart are the
50 dma and the 200 dma with their bull and bear crosses. So far the bull
cross, in April of this year, is still intact.

Lets now go back further in time and look at a five year chart that shows
that the US dollar has been in a nice confirmed uptrend channel for 2 1/2
years or so. Like the possible diamond pattern, that is forming on the daily
chart above, you can see why this area is soooo important to hold support.
I would really like to see our present low form just above the previous low
made a couple of months ago giving us a higher low on the bottom rail of
the uptrend channel.

Below is a long term chart that shows the big base being built that will launch
the US dollar much higher once the black dashed support and resistance rail
is finally broken to the upside. As you can see the price action has touched
the support and resistance rail several times now in the last few months.
This is where the diamond, I showed you on the second chart above, is forming.
I believe that diamond is going to give the US dollar the energy it needs
to finally overcome that support and resistance rail. I also expect once
the big S&R rail is broken to the upside there will be a backtest at
some point before the US dollar rally takes off. The red circle shows the
area I'm talking about

Below is a combo chart that shows the US dollar on top and gold on the bottom.
What strikes me first when I look at this chart is how the dollar has been
consolidating while gold has been declining. If the US dollar can bounce
off of this most recent low that should put a headwind in golds face. This
is what I refer to as an inflection point.

The last chart I would like to show is a long term monthly look at the US
dollar that is showing how the price action keeps testing the support and
resistance rail. This is telling us that this support and resistance rail,
on the monthly chart, is very very hot and once it's overcome the big base
will be competed. It lets us know where we are in the big picture which is
one of the most important aspects of charting. You have to know where you
are, relative to everything else, in order to make the best judgement call
one can make. These charts should get everyone up to speed on what may lie
ahead in regards to the precious metals complex and the deflationary episode
that looks to be in front of us. All the best...Rambus

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